How blockchain can accelerate the path to Net Zero

Jul 7, 2023

5 min read

Carbon credits and emissions reductions within organizations are essential in reaching Net Zero targets such as those established by the Science Based Targets initiative (SBTi). They enable organizations of any size to take responsibility right now, taking a first step to begin decarbonizing operational emissions. This process usually spans years or even decades for most companies.

Organizations need access to carbon credits before any of these processes can be initiated. These tools are currently the foundation of many Net Zero strategies. They are issued by pioneering organizations within the Voluntary Carbon Market (VCM), such as Gold Standard, American Carbon Registry, or Verra.

Without the work of these organizations, the VCM would not exist today, and Net Zero targets would not be attainable. However, technological innovations such as blockchain are improving this market, creating challenges for current VCM participants—and opportunities for organizations ready to embrace these new technologies.

The power of blockchain

At a high level, blockchains are ledgers that record and verify transactions securely and transparently. From finance to supply chains, blockchain has proven to be a transformative technology:

In financial markets, blockchain provides a secure method for transferring funds and settling transactions.
In supply chain management, blockchain ensures transparency and accountability, making tracking and verifying products easier.
Healthcare and real estate are examples of other sectors using blockchain technology to streamline processes and improve data security.

The decentralized nature of blockchains ensures that no single authority or entity has complete control over them, which promotes trustworthiness and reliability.

However, blockchain's benefits go beyond security and trust. Smart contracts automate processes and enforce agreements, saving time and reducing errors. Another key advantage of blockchain is its efficiency in reducing costs, as it eliminates intermediaries. Further, blockchain's immutability ensures that data stays unchanged, which is a game-changer for record-keeping and auditing.

These advantages explain why JPMorgan Chase uses blockchain for interbank payments, and Walmart uses its digital ledger to solve supply-chain challenges.

All around the world, forward-thinking organizations are employing blockchain innovatively to transform whole industries and sectors.

Blockchain’s impact on the VCM

Many of the established systems in the traditional VCM are falling behind in adapting to the transformative technology enabled by blockchains. Additionally, the market faces challenges on a more general level, such as:

integrity of the carbon credits;
speed of transactions and retirements;
availability of sufficient liquidity and
interoperability, leading to siloed systems, a fragmented market, and confusion between market participants.

These challenges are hindering the adoption of voluntary carbon offsetting as a means of driving climate finance—as evidenced by a slowdown in VCM growth since 2021. The blockchain-based Digital Carbon Market is positioned to reverse this trend through step-change improvements in:

Carbon credit provisioning can be enhanced by moving to dMRV solutions and issuance of carbon credits natively on blockchains.
Carbon credit accounting is simplified by blockchain’s immutable databases, which are resistant to manipulation—intentional or unintentional.
Carbon credit retirement is achieved by permanently destroying the credit, preventing any chance of double-counting a credit’s environmental benefit.

Of course, this technology is not, on its own, a silver bullet to every challenge the current VCM has to contend with. Nevertheless, as researchers at the Grantham Research Institute on Climate Change and the Environment at LSE have recognized, blockchains can help build the potential of carbon markets and alleviate many of the efficiency problems rooted in obsolete systems—an important milestone as our society runs out of time to create solutions.

How can I use blockchain to reach Net Zero?

The blockchain-based Digital Carbon Market is open and permissionless. Any organization can make transactions to buy, sell, or retire carbon credits as much as in the traditional VCM, albeit with benefits that are uniquely enabled by blockchain’s inherent properties. We explore some of them below:

Auditable carbon retirements

Organizations claiming to be carbon neutral need to be able to prove this statement. This is best achieved by acting transparently and showcasing audit-resistant proof of their climate action.

Carbon credits retired on Carbonmark can easily be traced from their inception to their final retirement. Double-counting is impossible as long as the carbon credit remains in a blockchain database, making an organization’s claim to Net Zero robust and instantly verifiable by observers.

Digital carbon retirements instantly generate carbon retirement receipts, which enable observers to verify the transactions and trace credits back to the issuing projects.

Strengthened credit liquidity

Carbonmark lists more than 20 million carbon credits, making it the largest marketplace for carbon credits in the Digital Carbon Market. The concept of liquidity pools, unique to blockchain systems, allows for much deeper liquidity and a more diverse set of carbon credits than traditional methods.

This enables you to select type, region, or vintage and begin your Net Zero journey in a way suitable to your company’s ESG goals without the need for extensive, time-consuming communication with intermediaries. Deep liquidity also allows for acquiring large amounts of carbon credits with low slippage, allowing for more cost-efficient emissions offsetting.

Carbonmark enables you to find credits issued by projects that suit your carbon offsetting strategy.

Enhanced retirement speed

Reaching Net Zero needs to happen sooner rather than later in response to increasing carbon emissions. Retiring carbon credits via blockchain-based software only takes a few seconds, compared to weeks or even months via traditional methods.

Once you have set up a Net Zero strategy, perhaps following the criteria set out by the SBTi, the greatly increased speed of carbon credit retirements allows you to put your plan into motion without delay. Increased transaction speed also means that you will be able to see the effects of your actions faster: you will receive a certificate demonstrating your commitment to climate action instantly.

Carbonmark: The blockchain-enabled carbon credit marketplace

Carbonmark is one of the first carbon credit marketplaces to enable your organization to access blockchain-based carbon credits. By using integrated solutions offered by Circle Custody or Torus, your organization can easily buy, sell, or retire carbon credits without requiring specialized blockchain expertise while still benefiting from all previously mentioned advantages:

Trace the lifecycle of any carbon credit from creation to retirement, allowing your company to clear any doubts about its commitment to our shared environment.
Choose from one of the largest selections of carbon projects worldwide, leaving your company to determine the preferred strategy for reaching Net Zero.
Benefit from greatly increased transaction and retirement speeds, creating an opportunity to take responsibility for your climate impact immediately.

Blockchains are the underlying technological foundation that allows novel retirement solutions like the one Carbonmark offers. They unlock innovation and allow carbon markets to scale freely, bringing us closer to tackling the financing gap.

Net Zero as an equilibrium between emissions reductions and carbon removal from the atmosphere via carbon credits is a challenge for organizations of any kind and size. However, once internal guidelines have been set, the blockchain-based Digital Carbon Market can support your organization in reaching its target verifiably, speedily, and securely.